Oil prices briefly slump on weak demand fears

12th May 2011, Comments 0 comments

World oil prices slumped on Thursday before firming in volatile trade, as the market was hit by a cocktail of weak energy demand and rising supplies, analysts said.

New York's main contract, light sweet crude for June, dived as low as $95.25 a barrel -- a level last seen on February 23. It later firmed to stand at $97.72, down 49 cents compared with Wednesday's close.

Brent North Sea crude for delivery in June dipped five cents to $112.52 a barrel in late London trading. Despite recent falls, prices remain at high levels.

"The fall in oil price has been prompted by the 'triple whammy' of poor Chinese economic data, falling global stocks and the IEA energy demand downgrade," said Emma Pinnock, an market analyst at energy consultants Inenco.

The market had already plunged on Wednesday due to signs of faltering energy demand in the United States and China, which are the world's top oil-consuming nations.

On Thursday, the International Energy Agency cut its outlook for 2011 global oil demand growth by 190,000 barrels per day because of high prices and unexpectedly weak recovery in rich countries.

"Investor sentiment has been hurt by weaker oil demand from China, a large unexpected build in (US) crude oil stocks and the (demand) downgrade from the IEA," said Myrto Sokou, an analyst at Sucden brokers.

"In addition, there are global inflation concerns that could threaten the global economic recovery and oil demand prospects," she added.

The IEA said it had trimmed its 2011 forecast for global oil demand growth owing to "persistent high prices and weaker IMF GDP projections for advanced economies". It put total demand at 89.2 million barrels per day.

Oil futures also faced renewed selling pressure after the US Department of Energy's latest weekly report on energy reserves Wednesday showing another increase in crude stockpiles and an unexpected rise in gasoline reserves.

The rises were a sign of softer demand in the world's largest oil-consuming nation.

There were also concerns over oil demand in China, the biggest energy consumer. China's central bank on Thursday said it would raise the amount of money that lenders must keep in reserve to reduce liquidity as official concerns persist over inflation and rising housing costs.

The People's Bank of China said it would raise its reserve requirement ratio by 0.50 percentage points, effective May 18 -- the fifth such hike this year.

Thursday's drop in oil prices, along with falls in the value of other commodities such as metals, weighed on global share prices.

© 2011 AFP

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